EMI break-up complete with pension fund sale

BANKING giant Citi yesterday offloaded the last major remnant of EMI by selling its pension fund for £1.5bn, ending a disastrous period that led to the break-up of the former British music giant.

The deal means EMI Group, the former home of The Beatles, Kraftwerk and the Spice Girls, has set one last record: the biggest ever UK pensions buyout.

All of the scheme’s liabilities will now be transferred to the London-based Pension Insurance Corporation (PIC), which will be responsible for paying its 20,000 members.

Citi seized ownership of the former FTSE 100 business in 2011 after deciding there was no hope of turning around the business. The bank had provided most of the funding when Guy Hands’ private equity outfit Terra Firma bought the company for £4bn in 2007.

However, a continued decline in sales and the belief that Hands had overpaid for the company at a market peak meant it struggled through round after round of cutbacks and restructuring.

Citi’s decision to take control of the company led to series of court proceedings as Hands failed in his attempts to sue the bank for encouraging him to enter a high bid for the company.

The bank then broke up the group at the end of 2012, selling off its back catalogue and ongoing record labels to the highest bidder. But Citi reluctantly agreed to retain responsibility for the pension fund in order to make the package more attractive to bidders.

Yesterday’s deal removes all lingering responsibility for the scheme from Citi and reunites EMI’s pension scheme with that of also defunct sister company Thorn, which was bought by PIC in 2008.

Chris Gilchrist, head of the trustee company, said the deal had been worthwhile: “I have written to the Fund members telling them that their benefits have been secured in full with PIC; as a trustee, fully securing benefits is the ultimate goal.”

Swapnil Katkar of Citi’s Pension Solutions team praised all those involved in the transaction, which completed ahead of schedule in just five months.

“We ran a disciplined process that allowed the trustee and sponsor to achieve their objectives of acquiring all risk cover on competitive terms from a leading provider,” he said.

ADVISERS

DAVID ELLIS
MERCER

Consultancy group Mercer advised Citigroup on the sale of the EMI pension fund. Their team was led by David Ellis, an actuary by training who joined the business in 2000 and has since advised on three of the biggest five UK pension buyouts.

“This is about finding the best long-term home for members to ensure payouts can continue for up to a century,” he said yesterday. “It’s also about managing everyone’s risks of increased cost – Pension Insurance Corporation do this for a living and Citi don’t. It’s all part of a long term trend and more firms would do [similar deals] if they could afford it.”

An actuary by training, he says he is preparing similar pension buyouts with FTSE 100 firms that will be announced by the end of the year.

Ellis was assisted by Andrew Ward, and also led a team including Adrian Hartshorn, Nigel Roth and Neil Rogers. Clifford Chance provided legal support. The fund trustees received advice from Premier Pensions Management, Sacker & Partners and Towers Watson.